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2.28.2008

The Fed

The Federal Reserve Bank of the United States was created in 1913 when the Federal Reserve Act was signed into law by President Woodrow Wilson. The Federal Reserve System is the third central banking system in the United States history.

In 1791 the First Bank of the United States was established by Congress at the urging of Treasury Secretary Alexander Hamilton. The bank had a twenty year charter, and it was not renewed by Congress in 1811.

In 1816 Congress agreed to a twenty year charter for the Second Bank of the United States. Andrew Jackson who was an opponent of the central bank was elected President in 1828. President Jackson vetoed legislation to renew the Second Bank of the United States, and when the Second Banks charter expired in 1836 it was not renewed.

The National Banking Act of 1863 was passed during the Civil War. It provided for nationally chartered banks whose circulating notes had to be backed by U.S. Government securities. An amendment to the act required taxation on state bank notes but not national bank notes.

IN 1893 bank runs and financial panics triggered the worst depression the U.S. had ever seen. Financial mogul J.P Morgan intervened and stabilized the economy.

J.P. Morgan again intervened after a particularly severe banking panic in 1907. There was clearly a need for banking and currency reform.

The Aldrich-Vreeland Act of 1908 provided for an emergency currency and established the National Monetary Commission to study banking and currency reform. The chief of the bipartisan National Monetary Commission was financial expert and Senate Republican leader Nelson Aldrich.

In 1912 Democrat Woodrow Wilson was elected President. From 1912 to 1913 the Glass-Willis proposal by Virginia Rep. Carter Glass, who would become the chairman of the House Committee on Banking and Finance, and H. Parker Willis, the Committee's expert advisor and formerly a professor of economics at Washington and Lee University, was debated, reshaped, and modified into the Federal Reserve Act.

On December 23, 1913, President Woodrow Wilson signed the Federal Reserve Act into law.

National banks are required to be member banks in the Federal Reserve System. Other banks may elect to become member banks. The numerous private U.S. member banks subscribe to required amounts of non-transferable stock in their regional Federal Reserve Banks.